HALTING NIGERIA'S ECONOMIC CRISIS: GLIMMERS OF HOPE
After one year of economic nightmare, Nigeria seems about to take a turn for the better. A couple of positive policy shifts and some development in the global oil market give indication of hope that the intense suffering of Nigerians in the last year may begin to ameliorate.
The first indication was the guided deregulation of the downstream Petroleum sector. Almost instantly, the fuel queues disappeared and Nigerians' double jeopardy retreated. For several years, Nigerians' common wealth was used to subsidize the price of fuel and yet many of us paid the market price. For many years especially in the last one year, Nigerians lost many valuable man-hours sleeping in filling stations and fighting for fuel. Those who could not endure this, patronized the parallel market- young men & women hawking fuel in Jerry cans and criss-crossing the highways. Very pitiable and demeaning experience. Those who do not understand how free market promotes efficiency, should learn lessons from what just happened. How come the fuel queues just disappeared over night, even when new suppliers are yet to enter the market? Answer: Rent seeking ended. Reasonable people struggled to buy the cheap petrol and went and resold at the true market price thereby creating exaggerated demand. Immediately the opportunity to 'round trip' was cut off with the deregulation, the exaggerated demand disappeared and with it the queues . Now what we have is approximately the true demand. Let's then watch what will happen when new suppliers enter the deregulated market which may lead to supply exceeding demand. Certainty is that prices will begin to moderate even if Government maintains the 145 Naira selling price. Different filling stations will begin to sell below the 145 Naira benchmark to attract more customers . Corruption in the Depots and in the filling stations have also largely disappeared. This is Economics 101 which we have learnt at great cost,after many years of cheating ourselves and shooting ourselves on the foot.
The second indication is the decision of The CBN at its last MPC meeting to change direction and allow flexible exchange rate which simply means that the Naira will be allowed to find its level against the dollar, resulting in certain devaluation for now. This move will have similar effect as the deregulation of the downstream petroleum sector or the removal of subsidy. First, Supply of Dollar will quickly increase because all the reasonable people who have been resistant in the last one year to bring in their dollars either as Foreign Direct investment( FDI ), or as Portfolio investment or as home remittance, because it did not make sense for them to bring in their dollars and get 199 Naira when they could get 300 Naira or even 285 Naira. Second, the exaggerated demand for dollar will decline if not disappear completely as the rent will cease. Nobody will buy from CBN at 199 Naira and then turn around to sell to the parallel market at 300 or 285 Naira. Most people will buy at nearly the same rate or the difference will decline significantly that the incentive to 'round trip' may be virtually extinguished .As all these happen, the Country will earn more Naira for its dollars, so it can provide more services to the people and the struggling states will have more cash to pay salaries; and the foreign reserves may rise as less dollar is demanded. Can anybody help me calculate the amount of incremental Naira, the Country would have earned if it sold its dollars at 285 Naira to the dollar instead of 199 Naira in the official market in the last one year? That is why you all must join me in begging the CBN not to make any exceptions. We should have one window and one rate. Any other window, not matter how narrow WILL lead to rent seeking and round tripping, wiping out any purported benefit.
The third glimmer of hope that I have seen is the gradual recovery of the price of crude oil in the international market. Last week, the price hit 50 dollars to the barrel. Though there is some irony to this, because the supply disruption in Nigeria is said to have contributed to this price recovery, it is nevertheless good news for Nigeria. With a budgeted price of 38 dollars, it means that Nigeria can begin to accumulate excess crude income and perhaps have an accretion in foreign reserves. If this situation remains sustained for a reasonable time frame, and given a regime of flexible exchange rate policy, the Currently battered Naira may begin to appreciate instead of its current burden of unending depreciation!
Fourthly, after all the drama and avoidable delays, the reflationary 6.06 Trillion Naira budget has been passed and I believe the Federal government is about now injecting huge sums of money into the economy. I can see contractors being paid and the road and rail projects resuming. Both the capital projects and the taunted special social projects should complement these new policy shifts and get the economic wheels spinning at faster speed.
For me these developments give me something to cheer about, raising my hopes that our economic nightmare may be coming to an end. I want to congratulate all those who must have worked real hard to convince our President that the "command & control "economic management regime was outdated and outmoded haven brought us to the precinct of an economic recession, and may have kept us queuing in the petrol Stations on the 29th of May, which will have prevented us From listening to his first anniversary broadcast to the Nation.
It is certain that we still have a very long road to travel before our economy can be revived, but we must remain steadfast on the new road we have begun to travel in the last two weeks or so. There should be no room for reversals and we must do what ever we can to consolidate on these recent gains. The Presidents gaze must shift squarely to the economy in the second year of his tenure without loss of momentum on the ANTICORRUPTION effort which must be broadened and deepened. As for the political and security eruptions, that threaten our sustained recovery,particularly the return of the Militants in the Niger Delta, the government needs to engage Nigerians and I believe Nigerians have the answer to the problems and challenges. This must be sincere engagement, devoid of propaganda and sophistry. Most Nigerians deprecate all forms of Violent agitation. I have repeatedly drawn attention to the fact that we need a department of HOME LAND SECURITY AND NATIONAL UNITY to undertake a painstaking and holistic effort to unite this Nation. From Boko Haram to MASSOP to IPOD to Fulani Herdsmen to Ekiti Hunters and now to the NDA( Niger Delta Avengers) and the Red Egbesu Sea Lions, something is fundamentally wrong with our Polity. It no longer matters who caused it. President Muhammadu Buhari and the leaders of the Ruling Party-APC must pay attention to this suggestion.The Government must do its utmost to give every Nigerian a sense of belonging and ensure equity, Justice and FairPlay. I strongly believe that the Government must pay attention to the report of the 2014 National Conference. Many of the leaders of APC were once ardent proponents of Restructuring of the Country through a National Sovereign Conference.They were Leaders in PRONACO. I am surprised that they have gone cold and numb on these matters. May we not wait until we are forced to start convening another conference. Let us learn to be proactive. If we were proactive in 1967, and implemented the ABURI Accord, perhaps we may have averted the Civil war and saved three million lives. My prayer is that no action or omission should extinguish these glimmers of hope for an incipient economic revival. Please join me in saying 'Amen'
The first indication was the guided deregulation of the downstream Petroleum sector. Almost instantly, the fuel queues disappeared and Nigerians' double jeopardy retreated. For several years, Nigerians' common wealth was used to subsidize the price of fuel and yet many of us paid the market price. For many years especially in the last one year, Nigerians lost many valuable man-hours sleeping in filling stations and fighting for fuel. Those who could not endure this, patronized the parallel market- young men & women hawking fuel in Jerry cans and criss-crossing the highways. Very pitiable and demeaning experience. Those who do not understand how free market promotes efficiency, should learn lessons from what just happened. How come the fuel queues just disappeared over night, even when new suppliers are yet to enter the market? Answer: Rent seeking ended. Reasonable people struggled to buy the cheap petrol and went and resold at the true market price thereby creating exaggerated demand. Immediately the opportunity to 'round trip' was cut off with the deregulation, the exaggerated demand disappeared and with it the queues . Now what we have is approximately the true demand. Let's then watch what will happen when new suppliers enter the deregulated market which may lead to supply exceeding demand. Certainty is that prices will begin to moderate even if Government maintains the 145 Naira selling price. Different filling stations will begin to sell below the 145 Naira benchmark to attract more customers . Corruption in the Depots and in the filling stations have also largely disappeared. This is Economics 101 which we have learnt at great cost,after many years of cheating ourselves and shooting ourselves on the foot.
The second indication is the decision of The CBN at its last MPC meeting to change direction and allow flexible exchange rate which simply means that the Naira will be allowed to find its level against the dollar, resulting in certain devaluation for now. This move will have similar effect as the deregulation of the downstream petroleum sector or the removal of subsidy. First, Supply of Dollar will quickly increase because all the reasonable people who have been resistant in the last one year to bring in their dollars either as Foreign Direct investment( FDI ), or as Portfolio investment or as home remittance, because it did not make sense for them to bring in their dollars and get 199 Naira when they could get 300 Naira or even 285 Naira. Second, the exaggerated demand for dollar will decline if not disappear completely as the rent will cease. Nobody will buy from CBN at 199 Naira and then turn around to sell to the parallel market at 300 or 285 Naira. Most people will buy at nearly the same rate or the difference will decline significantly that the incentive to 'round trip' may be virtually extinguished .As all these happen, the Country will earn more Naira for its dollars, so it can provide more services to the people and the struggling states will have more cash to pay salaries; and the foreign reserves may rise as less dollar is demanded. Can anybody help me calculate the amount of incremental Naira, the Country would have earned if it sold its dollars at 285 Naira to the dollar instead of 199 Naira in the official market in the last one year? That is why you all must join me in begging the CBN not to make any exceptions. We should have one window and one rate. Any other window, not matter how narrow WILL lead to rent seeking and round tripping, wiping out any purported benefit.
The third glimmer of hope that I have seen is the gradual recovery of the price of crude oil in the international market. Last week, the price hit 50 dollars to the barrel. Though there is some irony to this, because the supply disruption in Nigeria is said to have contributed to this price recovery, it is nevertheless good news for Nigeria. With a budgeted price of 38 dollars, it means that Nigeria can begin to accumulate excess crude income and perhaps have an accretion in foreign reserves. If this situation remains sustained for a reasonable time frame, and given a regime of flexible exchange rate policy, the Currently battered Naira may begin to appreciate instead of its current burden of unending depreciation!
Fourthly, after all the drama and avoidable delays, the reflationary 6.06 Trillion Naira budget has been passed and I believe the Federal government is about now injecting huge sums of money into the economy. I can see contractors being paid and the road and rail projects resuming. Both the capital projects and the taunted special social projects should complement these new policy shifts and get the economic wheels spinning at faster speed.
For me these developments give me something to cheer about, raising my hopes that our economic nightmare may be coming to an end. I want to congratulate all those who must have worked real hard to convince our President that the "command & control "economic management regime was outdated and outmoded haven brought us to the precinct of an economic recession, and may have kept us queuing in the petrol Stations on the 29th of May, which will have prevented us From listening to his first anniversary broadcast to the Nation.
It is certain that we still have a very long road to travel before our economy can be revived, but we must remain steadfast on the new road we have begun to travel in the last two weeks or so. There should be no room for reversals and we must do what ever we can to consolidate on these recent gains. The Presidents gaze must shift squarely to the economy in the second year of his tenure without loss of momentum on the ANTICORRUPTION effort which must be broadened and deepened. As for the political and security eruptions, that threaten our sustained recovery,particularly the return of the Militants in the Niger Delta, the government needs to engage Nigerians and I believe Nigerians have the answer to the problems and challenges. This must be sincere engagement, devoid of propaganda and sophistry. Most Nigerians deprecate all forms of Violent agitation. I have repeatedly drawn attention to the fact that we need a department of HOME LAND SECURITY AND NATIONAL UNITY to undertake a painstaking and holistic effort to unite this Nation. From Boko Haram to MASSOP to IPOD to Fulani Herdsmen to Ekiti Hunters and now to the NDA( Niger Delta Avengers) and the Red Egbesu Sea Lions, something is fundamentally wrong with our Polity. It no longer matters who caused it. President Muhammadu Buhari and the leaders of the Ruling Party-APC must pay attention to this suggestion.The Government must do its utmost to give every Nigerian a sense of belonging and ensure equity, Justice and FairPlay. I strongly believe that the Government must pay attention to the report of the 2014 National Conference. Many of the leaders of APC were once ardent proponents of Restructuring of the Country through a National Sovereign Conference.They were Leaders in PRONACO. I am surprised that they have gone cold and numb on these matters. May we not wait until we are forced to start convening another conference. Let us learn to be proactive. If we were proactive in 1967, and implemented the ABURI Accord, perhaps we may have averted the Civil war and saved three million lives. My prayer is that no action or omission should extinguish these glimmers of hope for an incipient economic revival. Please join me in saying 'Amen'
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